This article explores the reforms and considerations made by the Auditor General during the period the Mike Harris Conservative government were in power in Ontario.
Note: This article focuses on Ontario provincial policy, therefore all mentions of legislations, bills, will apply in the Ontario context, not federal (unless explicitly stated).
For a quick guide on the Auditor General of Ontario’s mandate and the office’s role and responsibilities, please refer to the article titled: History of the Auditor General of Ontario.
After the McGuinty led Liberal win in the 2003 Ontario provincial elections, McGuinty issued calls for an independent audit of the province’s books after the PC government in which Finance Minister Jim Flaherty had served as a cabinet minister. The independent audit revealed Ontario had a $5.6 billion deficit. This audit was conducted by the auditor general of the time, Erik Peters.
Throughout the provincial election, the Tories denied there ever being a deficit, despite statements otherwise from several financial institutions – and insisted that they would balance the books if they had returned to office.
After Peters had released his report, Liberal Finance Minister Greg Sorbara called the deficit ‘shocking’ and said it, ‘exemplified a history of mismanagement and misrepresentation on the part of the previous government.”
At the time, Conservative leader (and former Finance Minister) Ernie Eves took issue with Peters estimates and methodologies saying, “I don’t believe that number is 5.6$ billion.” He claimed that the Liberal government was playing partisan politics by scapegoating the Tories.
“I think, quite frankly, this all comes down to whether the government of the day has the will and they are determined to balance the books or they’re not,” Eves said. “Or you could just roll up your sleeves and get to work and find $1.2 to $1.7 billion…to balance the books.”
Erik Peters, head auditor at the time, had performed a systematic and comprehensive review of the government’s books. We begin to look at this below.
Beginning where we left off, the Legislative Assembly of Ontario, which included all political parties, had endorsed the legislative amendments to allow value-for-money audits by the Auditor of broader public sector organizations that receive government grants and this broad support across parties demonstrated a positive symbol from Parliamentarians in wanting to ensure fiscal accountability and a strong system of checks and balances on the executive level of government.
Ontario Legislative Intern Rebecca Sciarra interviewed Auditor Erik Peters. In that interview Peters had said,
when I came aboard [in 1993] we were already agitating [for a mandate review and amendments to the Audit Act]. I held this view because I felt that we should not be auditing into a vacuum and that was what was exactly happening, so long as transfer payment agencies were not subject to value-for-money audits. The point was that, about half of government spending was not done by ministries and we therefore didn’t have access to look at if those funds were being spent prudently
Auditor’s Proposed Reforms
Upon his appointment in 1993, Erik Peters recommended that clear management responsibilities and accountability frameworks be established for the transfer payment agencies.
As such, the Standing Committee on Public Accounts unanimously passed a motion in June of that year, giving approval in principle to the Provincial Auditor to pursue the establishment of a workable legislated accountability framework with central agencies before any amendments were made to the Audit Act.
With this motion, the next period of mandate review was comprised of consultation and collaboration between the then Provincial Auditor and senior officials stationed in the various transfer payment agencies, which would be affected by amendments made to the Act. It was clear, that senior officials within the central agencies did not agree on the need for a legislated accountability framework.
It was at this time that Peters wrote a letter to the Standing Committee on Public Accounts and requested that the committee recommend to the Minister of Finance an, “amendment be made to the Audit Act which would provide the Provincial Auditor with the discretionary authority to audit a recipient of a government grant on a basis consistent with the full scope of the Audit Act.”
The committee agreed and recommended that public hearings be held. When the public hearings had come to a conclusion in June 1996, the Provincial Auditor submitted draft proposals for amending the Audit Act to the Standing Committee on Public Accounts and the committee endorsed the proposals and adopted a motion that stated that the “Committee requests a response and action plan from the Minister of Finance by the Committee’s first meeting following the summer recess.”
The Minister of Finance at the time, Ernie Eves, was supportive but held a cautionary response by the suggested date. He wrote that the proposals “represent a significant step towards the fundamental reform of the public sector accountability system and I agree with the principles upon which it is based.”
Ultimately, the Minister of Finance responded that despite his agreement with the principles underlying the proposed amendments, the entrenchment of the office’s mandate review would have to follow a public policy initiative being led by the government regarding restructuring of transfer payments in the province, otherwise known as the “Who Does What” implementation during the first mandate of the Mike Harris led PC government.
Earnie Eves and the Provincial Auditor began discussing the process and on October 2, 1996, the Minister of Finance met with Erik Peters on the nature of the proposed amendments. The Minister of Finance had agreed with an endorsement of the principles underlying the proposed amendments, however the Finance Minister still reasoned that it was best to await the outcome of the transfer payment restructuring exercise that his government had initiated. It was suggested to Peters that by 1997, the outcomes would be fully realized and the government could then turn attention to introducing complimentary amendments to the Audit Act.
Throughout 1998, and 1999, Erik Peters continued to urge the government to consider implementing the proposed amendments to the Audit Act, however to no avail. Each year, the Auditor’s Annual Reports outlined the lack lustre status of amendments to the Audit Act.
In 2000, Erik Peters wrote another letter to Minister of Finance Jim Flaherty.
Flaherty replied, that the ministry was still examining the full range of accountability issues, of which proposed changes to the Audit Act.
Due to this unhopeful response, the Provincial Auditor continued to lobby for a meaningful mandate review and turned strategies
Examination of the Provincial Auditor’s Annual Reports illustrated the repeated efforts of the Provincial Auditor in attempting to initiate a mandate review and the consistency of the proposed amendments, as well as the non response of government. The 2001 Annual Report noted that the government announced in its Speech from the Throne on April 19, 2001, that it would be introducing sweeping reforms to ensure that all public sector institutions are accountable to the citizens of Ontario and “in the planned reforms was a commitment to make amendments to the Audit Act.”
Furthermore, as indicated in Chapter 2 of the same report, Peters said,
I am of the view that all transfer-payment partners should be subject to legislated public accountability, including performance reporting and a better legislative audit regime. Provincial monies flowing to grant-recipient organizations continue to represent the single most significant demand on the province’s treasury, with about 50% of total government expenditures flowing to grant-recipient organizations
He also added later, “I discussed the proposed amendments to the Audit Act with the Minister of Finance, who indicated that he expects to introduce a Bill to amend the Audit Act in the fall of 2001 session of the Legislative Assembly.”
Thus clearly, he was expecting these reforms to be implemented within the same year. However, it did not work out quite that way.
When the 2002 Annual Report explained that despite the references to public sector accountability in the 2001 throne speech, “inconclusive discussions on a comprehensive set of amendments took place during the summer and fall of 2001 between the Provincial Auditor’s office and the then Minister of Finance.”
Peters repeated some of what he had written in the 2001 report and added, “To facilitate good performance and accountability and to ensure that taxpayer’s’ money is spent prudently and for the purposes intended, both a legislated accountability framework and a full value-for-money legislative audit regime need to be applied to the broader public sector. I again strongly urge the government to enact my proposed amendments to the Audit Act and the proposed Public Sector Accountability Act. Once approved by the Legislative Assembly, I look forward to applying the amended Audit Act to a legislated accountability framework.”
By the time the 2003 Annual Report came around, there still was no plan in motion to adopt the changes Peters had been requesting for many many years. In fact, he also attached a letter he had written to the Finance Minister Ernie Eves, which is found below.
Erik wrote, “We did not receive a response to our letter of April 11. Nevertheless, and in spite of repeated setbacks we have experienced over the years in our efforts to have the Audit Act amended, the Office remains committed to pursuing amendments to the Act so that we may better serve the Legislative Assembly.”
In her report’s conclusion, she wrote, “Ontario’s process of reviewing the mandate of its chief observer of governmental fiscal accountability and the economy, efficiency, and effectiveness of government operations is clearly convoluted…the process of legislative auditing since the 1970s, anyway, has been a tool of parliament to be used after the expenditure of money to clearly see where money is going and whether or not that money is being spent in the most prudent manner as defined by rigorous auditing standards. That the evolution of legislative auditing has always occurred a step behind the evolution of a political system or parliament makes sense. Legislative auditing is a ‘check’ on government, and by virtue of that purpose, its functions can only be applied after the government as acted.”
What’s important to note, is that in the 1980s and throughout the 1990s, the flow of provincial moneys changed dramatically.
As of March 31, 1996, $28 billion or 48% of government funds were spent by separately governed recipients. By 2004, government transfers to the same recipient organizations was approaching $37 billion.
In order for a mechanism within a political institution to remain relevant and effective, it would have to evolve in tandem with, or atleast shortly after, the changes that would be experienced within that political institution.
Further, if the mechanism in question is one which acts as a legislative check on the balance of power exercised by a government but is unable to remain effective,then questions arise as to the institutional functionality and democratic robustness. Perhaps these were questions Sciarra was attempting to address.
In Sciarra’s interview with Erik Peters, she asked him what led him to hold the perspective that the Auditor’s mandate should be expanded. He replied,
the government was handing over money…without the government having any sense of the quality of the services provided…were they a fat organization? Were they delivering quality service? Did they have to be asked and they had to be answered and there was only limited information….we felt that within an accountability framework and within an accounting regime these questions needed to be answered.
Scirra also inquired if the Audit Act or other pieces of provincial stature clearly define how a mandate review is supposed to occur. He replied, “
…not really and I think that there is a very real problem in this area. The Audit Act falls under the Minister of Finance…so what it came down to was how keen the Minister was…it became very clear to me in January 1993 that there was a real problem with how the province dealth with its public accounts. In the first few years that I was the Provincial Auditor, I had gone to the standing committee on finance and told them that I felt the budget was problematic…I said do not budget this way…use accounting rules. My view had always been that if we were going to be dealing with amendments to the Audit Act, we should deal directly with the minister and not through the bureaucracy.
So why was there such a long institutional delay in having the reforms passed through? Well, without a clearly established and formal process of mandate review that is required to occur between the Minister responsible for the legislation that the officer of the legislature is charged to administer, the legislative committee responsible (if there is one), and the appointed head of the office of the legislature in question; the method of last resort falls to a group of individual parliamentarian MPPs whose range of tools consist of the private member’s bill, and yet while many private member’s bills were drafted, they had all failed.
Auditor’s Feedback to the Standing Committee on Public Accounts
In the deliberations between the Standing Committee on Public Accounts and the Auditor, Peters had much to say about the scope of the auditing review process. This can be found in the Official Report of Debates dated December 6, 2001.
Peters had said,
in the area of the Ministry of Agriculture, Food and Rural Affairs, [we] found that food safety deficiencies in slaughterhouses, which were defined as critical by the ministry and which could pose risks to human health, were often not corrected in a timely manner. [The program] spends about $10 million a year on inspections. We found that from a purely straightforward administrative point of view, they are administering that money quite well. Our concerns were more with the outcomes; in other words, in this particular case, where critical deficiencies were found to be deficient still on follow-up by the inspectors. In other words, the items are not being corrected, so the outcomes are of concern. The second one that we didn’t mention here was, for example, on the fruit and vegetable side, where they had done an inspection and found 80 times the permitted level of pesticides, but by the time we completed the audit, which was at the end of March, no retailer or grower had been notified of this problem
Later on he said,
We also found that the Ministry of Transportation had mismanaged millions of dollars worth of consulting contracts, and we have quite a list in our report about some of the detail that we found in that case. At the Ministry of Community and Social Services we found that there were well over 1,000 cases where women and children were turned away from shelters operated under the violence against women prevention program…Also at that ministry, we found that funding for the needs of vulnerable individuals was provided without critical assessment of the quality and level of service provided. As well, we found cases of duplicate payments, overpayments, and poorly timed payments.
And he also proceeded in noting the findings out of the various different Government Ministries. These are included below:
“At the Ministry of the Attorney General we found that with approximately the same amount of funding received in the 1991-92, Legal Aid Ontario is now providing only half the legal aid certificates it provided nine years ago; in fact, they were down to about a third in one of the last three years.
At the Ministry of Education we found that neither the ministry nor the school boards were able to determine if current programs and services delivered to many students with special needs actually met the needs of the students, were cost-effective and were of good quality.
At the Ministry of Health we found in many cases there was no sufficiently aggressive action taken to ensure that it was paying competitive prices for drugs under the Ontario drug benefit program, for assistive devices and home oxygen. We estimate that this cost taxpayers well over $100 million. Some of the processes were competitive tendering. In some cases we were paying higher prices than Saskatchewan and Quebec, although we are a higher-volume consumer.
In our follow-up of the highway maintenance program we found that the expected savings from the outsourcing of highway maintenance could not be demonstrated by a consulting firm that was hired for that purpose. In fact, a new management of the Ministry of Transportation agrees with us that it is now more important to move on and monitor and control performance of the contractors to make this outsourcing work.”
He also said, “as I have emphasized in previous annual reports, good administration of public funds depends on good decisions that are based on good information. Let me highlight some of the instances where we reported on insufficient information in this report.”
- In the audit of the community reinvestment fund, Peters team found that the Ministry of Finance did not have empirical or analytical support for the savings imposed by the provinces on municipalities in the local services realignment initiative. These savings targets were applied in a funding formula that was intended to ensure that the initiative was revenue-neutral. However, the use of the savings targets in the funding formula resulted in some municipalities enjoying windfall gains and other municipalities not receiving the funding required to achieve revenue neutrality
Peters told the committee, “Although a total of $1.8 billion has been paid by the Ministry of Finance out of the community reinvestment fund since 1998, these funds have not ensured the ongoing revenue neutrality of the local services realignment initiative for many municipalities; in fact, for all municipalities one way or other. Some made gains and some had losses.
During our audit of the gasoline, fuel and tabacco taxes, we noted that the Ministry of Finance lacked the information and the supporting information technology systems necessary to ensure that all gasoline, fuel, and tabacco taxes owing were in fact declared and paid. For instance, based on our limited testing of fuel and gasoline tax returns, we found 345 million litres, which represented approximately $51 million in potential taxes, were not properly accounted for.”
As per the Auditor report, Peters team had made 109 recommendations and each of the ministries involved had made commitments to take corrective action based on the findings.
Peters also said,
As required by the Audit Act – that’s section 12(2)(a), I believe – I must bring your attention a very serious matter regarding my office’s access to information. For the first time since being appointed Provincial Auditor, I have to report an instance where a ministry hindered the audit process. Contrary to section 10 of the Audit Act, the then senior management of the Ministry of Transportation did not give my staff full access to pertinent files, deleted parts of documents provided to my staff and inhibited ministry staff from speaking freely with my staff. Subsequent to the completion of our audit, a new Minister of Transportation were appointed, and I am pleased to note that they took immediate steps to ensure that this problem would not occur again in future.
In the third paragraph on page 251 of the report, it reads,
Because the ministry did not provide the necessary information on a timely enough basis for this annual report, we cannot provide assurance that the proposed legacy system renewal [the $101 million dollars] was based on a properly completed business case and strategic plan. We will follow up on the ministry’ efforts to develop and implement the proposed legacy system renewal at an appropriate time.
The conclusion from all of this, is that Peters worked very diligently and patiently in order to request legislative amendments be brought to the Audit Act in order to expand the responsibilities of his office to make it more accountability for the taxpayer. His office had been seeking amendments for close to a decade, in which they were finally settled upon once the McGuinty Liberals took power in the 2003 Provincial election.
Lastly, Here is an example of an audit review letter sent to a school board by the Northeastern Ontario regional internal audit team signed by the Director of Education of the school board in 2011. This presents a real life example of how a typical audit would be conducted.
Part 1 – Bob Rae: Rainy Rae Days
Part 2 – The Harris Common Sense Revolution
Part 3 – Streamlining Legislations and Eliminating Red Tape in Ontario
Part 4 – Provincial Downloading
Part 5 – Ontario Tax Cuts
Part 6 – Firesale: The Highway 407 Hijack
Part 7 – Metropolitan Toronto: An Amalgamated Megacity
Part 8 – Ontario Hydro Privatization
Part 10 – The End of the Common Sense Revolution